B-to-b media companies moving in hot M&A market

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How strong is the mergers and acquisitions market in b-to-b media?

It's attractive enough that two companies which have had very public struggles since 2000 have put themselves on the market: Ziff Davis Media, publisher of PC Magazine, and Penton Media, publisher of IndustryWeek .

"We're deep into an M&A cycle, and it's the best market since the late 1990s," said Tom O'Connor, managing director at communications industry investment bank Berkery, Noyes & Co.

High-profile deals

The list of companies that have recently completed or contemplated deals is a long one. Among the most high-profile deals:

Forbes sold a minority stake for a reported $250 million to Elevation Partners, a private equity fund whose partners include Bono, the lead singer of rock band U2.

Valcon, a consortium of private equity firms, acquired VNU, which includes VNU Business Media, publisher of Billboard , for $9.7 billion.

1105 Media, headed by Neal Vitale, bought 101communications, publisher of Federal Computer W eek, for an estimated $75 million.

Advantage Media, led by Rich Reiff, acquired Reed Business Information's New Products division for an undisclosed price.

In addition to Ziff Davis and Penton, several other b-to-b media companies have explored or are exploring the market. Highline Media is reportedly looking to recapitalize. Cygnus Business Media explored a sale but pulled itself off the market. And TechTarget is preparing an initial public offering.

Some factors driving the torrent of deal-making are purely financial-the favorable debt market for one. But private equity funds, which are doing most of the large-scale acquiring of b-to-b media companies, are growing concerned that the debt market's attractiveness will be short-lived.

Richard Mead, managing director of media investment bank Jordan, Edmiston Group, said hostilities in the Middle East and rising oil prices, for example, could hurt the debt market. "It doesn't require much for the banks to get skittish," he said.

The fear of this closing window of opportunity is driving many companies to explore sales, industry observers said. "The market is not going to get any better, only worse," said one banker, who asked not to be identified.

Improved fundamentals

In addition to attractive financing, "business fundamentals have improved" in b-to-b publishing, said Roland DeSilva, co-managing partner of media investment bank DeSilva & Phillips.

Robert Krakoff, who was named CEO of VNU Business Media earlier this month, remains bullish on b-to-b media, provided the magazine, event or online property is in a healthy, growing market. (Krakoff succeeded Michael Marchesano, who was tapped as "chief transformation officer" at VNU).

Krakoff pointed out that, with the exception of the information technology and telecommunications sector, b-to-b media as a whole has posted a strong performance since 2003. "If you ask Hanley Wood [which focuses on the healthy construction sector], they'd say, 'What downturn?' " he said.

Even with ad pages overall showing modest growth at best, b-to-b media operations as a whole are beginning to generate growth with the performance of face-to-face events and the consistent double-digit growth of Internet revenue. After the down years of 2001 to 2003, potential buyers are once again optimistic about b-to-b media's potential, particularly when it comes to the Internet. Buyers believe that online revenue, especially when backed by smart capital, can eventually drive significant profits.

Mike Paradiso, global media director for CA, said he tracks the M&A activity in his company's sector. "I certainly keep an eye on it," he said. "I think most companies and their competitors pay more attention to it and make the advertising community probably a little bit more aware of it than they may need to [be]. At the end of the day, the question I need to answer is: Is it affecting the product?"

Paradiso expects that much of the new capital flowing into b-to-b media will go toward the Internet. Many of the recent deals (and executive hires) have been made with an optimistic and aggressive eye toward the online future. "The advertising and lead generation available online are big, but they require new stuff, new people, new skills and new money," said Tolman Geffs, managing director at Jordan, Edmiston.

In the Forbes deal, appeared to play a major role. "Elevation is delighted to partner with the Forbes team to build on this tremendous platform and take advantage of the new opportunities being created by Internet technology," said Roger McNamee, a partner in the private equity firm, in a statement.

On the print and Internet side, Forbes executives were bullish on the deal. "I'm excited about the opportunity to be even more aggressive," said Jim Spanfeller, CEO of, who said that more vertical b-to-b sites could be in the works.

Added James Berrien, president-publisher of Forbes Magazine Group: "We have to prioritize all the ideas we have in here and find the three or four big winners. It's going to be fun."

Cygnus Business Media, which is owned by ABRY Partners, was exploring a deal of its own in recent months but eventually pulled the company off the market, according to industry observers. Instead, ABRY Partners earlier this month signaled an increased emphasis on the Internet by replacing Paul Mackler, the company's president-CEO, with Co-CEOs Carr Davis and Anthony O'Brien, who have extensive experience in generating revenue from the Internet. One of their first efforts was to help Congressional Quarterly become a daily online information source.

Industry observers say ABRY pulled Cygnus off the market because the company has a "high cost basis," as one investment banker put it. This means it would take a high EBITDA (earnings before interest, taxes, depreciation and amortization) multiple to pay off the debt incurred building the private company.

Ziff Davis and Penton may find a similar fate awaits them, according to industry observers. What these companies have in common is that significant deals involving each were executed at the top of the market in the dot-com boom and have loaded them with debt that will likely complicate any potential sale.

Ziff Davis had long-term debt of $357.5 million as of Dec. 31, 2005. Its EBITDA for 2005 was $17.4 million. At a 10-times EBITDA multiple, the company would be valued at $174 million, significantly less than the $780 million Willis Stein paid for it in 1999. Some bankers believe that Willis Stein may find a better price by selling Ziff Davis in pieces.

"Ziff has done a great job of repositioning the company, but it's still struggling from all the softness in the IT sector," said Jordan, Edmiston's Mead. "So at this stage, it's probably wise for Willis Stein to contemplate an exit strategy."

Mead gave an upbeat assessment of Penton's prospects. "Penton will attract a lot of attention because it's done the heavy lifting," Mead said. That heavy lifting has included restructuring its debt, cutting jobs and emphasizing the Internet.

Penton's total debt at the end of 2005 was $323.0 million; its adjusted EBITDA for last year was $57.4 million. At a 10-times EBITDA multiple, Penton would go for $574 million, although analysts are divided as to whether the company can reach that price.

Reporter Matthew Schwartz contributed to this report.

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